Vincent Fernando, CFA
Friday, June 18, 2010
The Reformed Broker thinks China is a huge secret buyer of gold, highlighting a very interesting anecdote from CNN Money.
‘China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world’s largest producer of the metal, China often buys gold from its own mines and doesn’t report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.
Analysts suspect the country is continuing to buy gold and could in fact, be the world’s largest buyer consistently. It simply doesn’t reveal it’s pro-gold stance proudly, however, because China is also the world’s largest holder of U.S. Treasurys.
Announcing an aggressive gold buying spree is not in China’s best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country’s portfolio of U.S. government bonds, Schlossberg said.’
Here’s our question though… does the Chinese government pay a market rate? Or do they just appropriate the gold from domestic miners at a below-market price? We’d bet on the latter, which would make secrecy around purchases make even more sense.
This article was posted: Friday, June 18, 2010 at 10:09 am